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A.M. Best Upgrades Credit Ratings of Security Benefit Life Insurance Company and First Security Benefit Life and Annuity Company of New York

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Besthas upgraded the Financial Strength Ratings to A- (Excellent) from B++ (Good) and the Long-Term Issuer Credit Ratings to “a-” from “bbb+” of Security Benefit Life Insurance Company (Topeka, KS) and First Security Benefit Life and Annuity Company of New York (New York, NY). The companies are collectively known as Security Benefit and are wholly owned subsidiaries of Eldridge Industries. Concurrently, A.M. Best has upgraded the Long-Term Issue Credit Rating to “bbb” from “bbb-” on the $100 million 7.45% surplus notes, due 2033, issued by Security Benefit Life Insurance Company. The outlook of these Credit Ratings (ratings) is stable.

The rating upgrades reflect Security Benefit’s balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, neutral business profile, and appropriate enterprise risk management (ERM). As part of the change of ownership, Eldridge has provided significant capital contributions to Security Benefit, which have materially increased absolute and risk-adjusted capitalization levels. Statutory earnings in recent years have been negatively impacted by high strain on its fixed indexed annuity (FIA) sales and reserve adjustments related to FIAs with guaranteed benefits in 2016; however, with the moderation of FIA sales and continued favorable investment spreads, operating earnings are now trending positively and are expected to support organic growth in capital. In addition, distribution diversification is broader relative to peers due to multi-channel distribution and differentiated product offerings. A.M. Best notes that financial leverage is elevated from prior years, but remains within guidelines for the current ratings. Furthermore, the organization anticipates modest dividends from the insurance companies to support interest payments on the debt.

Partially offsetting these positive rating factors are the elevated concentration risk in the business profile in interest sensitive annuities and the investment portfolio in higher risk asset classes. The company’s allocations in structured securities and other non-traditional assets are viewed as high relative to industry averages, and the securities are viewed as higher risk due to potential liquidity concerns under stressed capital market conditions. Additionally, the company holds a significant allocation to floating rate securities, which exposes the company to asset-liability mismatches and earnings compression in declining interest rate scenarios.